Global diesel prices likely to weaken in 2014 with startup of Jubail refinery

In product markets, the new refinery will add to the supply of clean diesel in Saudi Arabia and Europe -- markets typically supplied by India. Since Indian refiners export diesel to so many markets, the appearance of this competing supply source may have bearish consequences for global diesel prices.

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The 2014 startup of the Jubail refinery will take the shine out of
Indias product export boom and weaken global diesel
prices, according to the recently-published Global
Transport Fuel Outlook from energy consultancy ESAI
Energy.

In product markets, the new refinery will add to the supply of
clean diesel in Saudi Arabia and Europe -- markets
typically supplied by India. Since Indian refiners export diesel to so
many markets, the appearance of this competing supply source
will have bearish consequences for global diesel prices, the
consultants predict.

Indias private refiners exported close to 1.2 million bpd
of products in 2012, 485,000 bpd of which was diesel
(see map below). Due to its geography, Indias refiners have access to
markets from the Atlantic Basin to Asia.

The Jubail refinery, a joint venture of Saudi
Arabia and Total, will have the capacity to produce 235,000 bpd
of ultra-low-sulfur diesel (ULSD). This output will make Saudi
Arabia, the destination of 85,000 bpd of Indian diesel exports
last year, now a net exporter.

Additionally, Total is likely to export some of its share of
diesel production, about 70,000 bpd, to Europe, potentially weakening
Reliances position in that market, according to the
consultants.

With Indias domestic market experiencing weak demand and
new state-owned capacity, Indias private refiners must
look to other export markets, such as South Africa, Latin
America and Asia.

There are direct consequences for all key diesel
markets, said Vivek Mathur at ESAI Energy.
Jubail will add to the availability of clean diesel to Europe, where demand continues to
collapse. In 2014, the growing supply-demand mismatch will
weaken the diesel spread to Brent.

"Unless Indias private refiners cut
runs, they will have to target the Asian market," he
added. "But with Chinas emergence as a diesel
exporter, competition among suppliers will likewise be bearish
for Singapore gasoil spreads to Dubai.

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